Ranpak Holdings Corp. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in millions of dollars unless otherwise stated. Ranpak provides protective packaging systems and paper consumables for e-commerce and industrial supply chains.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $81.9 | $86.8 | $163.1 | $169.3 |
| Gross profit / margin | $30.2 / 36.9% | $28.3 / 32.6% | $57.7 / 35.4% | $52.9 / 31.2% |
| Operating income (loss) | $4.4 | $(11.4) | $(4.5) | $(25.2) |
| Net loss | $(2.1) | $(11.3) | $(14.5) | $(25.4) |
| Basic and diluted loss per share | $(0.03) | $(0.14) | $(0.18) | $(0.31) |
| Operating cash flow | Not provided for quarter | $16.6 | $(16.3) |
Q2 EBITDA, a non-GAAP measure, was $20.8 versus $8.7; constant-currency adjusted EBITDA (AEBITDA), also non-GAAP, was $19.0 versus $18.2. For the first half, EBITDA was $28.3 versus $14.3, while constant-currency AEBITDA was $34.1 versus $37.3. These measures are not substitutes for GAAP results.
Liquidity, debt and cash flow
- Cash and cash equivalents were $53.9 at June 30, 2023, down from $62.8 at December 31, 2022. Current assets were $139.0 and current liabilities $49.0.
- Debt was $402.9, including finance lease liabilities and excluding deferred financing costs; $2.7 was classified as short-term. The balance sheet reports $396.7 of total debt after deferred financing costs, including finance leases.
- No revolving-credit borrowings were outstanding. The $45.0 million facility had $43.6 million of net availability after letters of credit.
- First-half cash flows: operating activities provided $16.6; investing activities used $25.2, including capital expenditures of $25.2; financing activities used $0.7. Cash decreased $8.9 during the period.
- Term-facility interest rates at June 30 were 9.26% on the dollar facility and 7.22% on the euro facility. Management expects interest expense on the facilities to increase as rates rise.
Changes versus comparable periods
- Q2 revenue declined 5.6%; constant-currency revenue declined 7.0%. First-half revenue declined 3.7%; constant-currency revenue declined 3.1%.
- Paper-consumable sales volumes were the main revenue headwind. Q2 declines in cushioning, void-fill and wrapping were partly offset by growth in other products. For the first half, void-fill and wrapping fell while cushioning and other products increased.
- Lower input costs, including paper, and lower depreciation in cost of goods sold supported gross-margin improvement. SG&A fell sharply, chiefly because of a stock-compensation expense reduction.
- Interest expense increased 20.4% in Q2 and 17.2% in the first half, primarily due to higher borrowing rates. Foreign-currency results shifted from gains in 2022 to losses in 2023.
- Installed PPS systems increased 3.1% year over year to 140,700 at June 30, 2023.
Outlook, risks and unusual items
- The filing gives no specific numerical revenue or earnings guidance. Management expects seasonality to continue, with revenue typically strongest in Q4 and slowest in Q1.
- Management cited lower economic activity, inflation’s effect on customer budgets, and increased business sponsoring costs as revenue pressures. Paper and other input costs had eased in North America, but European pricing remained unsettled; management expects medium-term gross-margin pressure and cautioned that passing on cost increases may be difficult.
- Key risks include paper supply and pricing, inflation and interest rates, competition and customer price sensitivity, customer demand, supplier reliance, foreign-exchange exposure, and the effects of the Ukraine conflict.
- Q2 SG&A included a roughly $13.0 million reduction in stock-compensation expense, mainly from revised performance expectations for 2021 LTIP performance awards. This materially aided reported operating results.
- The company recorded a $0.2 million loss on the planned sale of its Heerlen, Netherlands property, classified as held for sale at June 30; a $2.9 million sale was expected in Q3 2023. It also began a 15-year lease for its new Netherlands regional headquarters and manufacturing facility.
- Debt amendments replaced LIBOR-based mechanics with SOFR-based terms and extended the revolving facility’s maturity to June 2025. The company reported compliance with financial covenants at quarter-end.
- Disclosure controls were not effective because of previously identified material weaknesses in internal control over financial reporting. Management expected to remediate a majority, but not all, by year-end 2023; remediation remained subject to testing and possible delay.
- Management reported no impairment indicators at June 30. It stated that known litigation and environmental contingencies required no accrual and were not expected to materially affect financial condition, liquidity or cash flows.
Important facts for investors to verify
- Whether revenue and paper-consumable volumes stabilize, particularly in void-fill and wrapping, and whether regional demand improves.
- How much of reported profit improvement is sustainable after the unusually large stock-compensation reversal, and how non-GAAP adjustments affect comparisons.
- Interest-rate exposure, future interest expense, debt covenant headroom, and the terms and availability of revolving credit.
- Progress and testing of internal-control remediation, including whether management’s stated timeline is achieved.
- Completion and proceeds of the Heerlen property sale, and the financial impact of the new long-term facility leases.